Harley Davidson 2013 Annual Report Download - page 31

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31
Financial Services Segment
Segment Results
The following table includes the condensed statements of operations for the Financial Services segment (in thousands):
2013 2012 (Decrease)
Increase %
Change
Interest income $ 583,174 $ 583,700 $ (526) (0.1)%
Other income 58,408 54,224 4,184 7.7
Financial services revenue 641,582 637,924 3,658 0.6
Interest expense 165,491 195,990 (30,499) (15.6)
Provision for credit losses 60,008 22,239 37,769 169.8
Operating expenses 132,990 135,008 (2,018) (1.5)
Financial services expense 358,489 353,237 5,252 1.5
Operating income from financial services $ 283,093 $ 284,687 $ (1,594) (0.6)%
Other income was favorable primarily due to higher fee income, increased credit card licensing revenue and increased
insurance commission revenue. Interest expense benefited from a more favorable cost of funds, partially offset by higher debt
levels related to higher average finance receivables outstanding.
The provision for credit losses was unfavorable compared to 2012 due to an increase in the provision for retail credit
losses. Retail motorcycle credit losses increased $15.8 million in 2013 as compared to 2012 due to lower year-over-year
recoveries as well as a higher frequency of loss. As a result, the 2013 retail motorcycle provision increased $36.8 million.
Additionally, 2012 benefited from approximately $17.0 million in allowance releases.
Annual losses on HDFS’ retail motorcycle loans were 1.09% during 2013 compared to 0.79% in 2012. The 30-day
delinquency rate for retail motorcycle loans at December 31, 2013 decreased to 3.71% from 3.94% at December 31, 2012.
Changes in the allowance for credit losses on finance receivables were as follows (in thousands):
2013 2012
Balance, beginning of period $ 107,667 $ 125,449
Provision for credit losses 60,008 22,239
Charge-offs, net of recoveries (56,982)(40,021)
Balance, end of period $ 110,693 $ 107,667
At December 31, 2013, the allowance for credit losses on finance receivables was $106.1 million for retail receivables
and $4.6 million for wholesale receivables. At December 31, 2012, the allowance for credit losses on finance receivables was
$101.4 million for retail receivables and $6.2 million for wholesale receivables.
HDFS’ periodic evaluation of the adequacy of the allowance for credit losses on finance receivables is generally based on
HDFS’ past loan loss experience, known and inherent risks in the portfolio, current economic conditions and the estimated
value of any underlying collateral. Please refer to Note 6 of Notes to Consolidated Financial Statements for further discussion
regarding the Company’s allowance for credit losses on finance receivables.